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Monday, February 04, 2008

FT: Leveraged loan market in “disarray”

by Calculated Risk on 2/04/2008 09:54:00 AM

From Stacy-Marie Ishmael and Henny Sender at the Financial Times: Loan market in ‘disarray’ after Harrah’s upset

The leveraged loan market begins the week in “disarray” following the collapse of efforts to syndicate $14bn of the debt used to finance the $30bn buy-out of Harrah’s Entertainment, bankers say.

The group of banks backing buyers Apollo Management and Texas Pacific Group are having trouble selling on the leveraged buy-out debt to third parties. With the bulk of the debt remaining on their books, the banks are sitting on a sizeable loss.
Virtually every loan-backed buy-out deal done in the past few months is trading well below 90 cents on the dollar. With most investors concluding that the bottom is not yet in sight ...

“The market is in total disarray,” said the head of debt capital markets at one major Wall Street firm. Another senior banker involved in the deal added: “The last 10 days have been the worst ever. There is a complete buyers’ strike.”
When a bank makes a bridge loan for a leveraged buy-out deal, and then can't syndicate the debt, it is known as a "pier loan"; a bridge that goes nowhere. With all the discussion of bad real estate debt, it is easy to forget that Wall Street is still saddled with pier loans from the LBO frenzy of 2007.

As Yves Smith at naked capitalism comments:
In the late 1980s, bridge financing ... brought investment banks a heap of trouble. But there is no institutional memory.